Credit risk management practices of Indian Commercial Banks

Risk is inherent part of bank's business. Effective risk management is critical to any bank for achieving financial soundness. In view of this, aligning risk management to bank's organizational structure and business strategy has become integral in banking business. Credit risk is the bank's risk of loss arising from a borrower who does not make payments as promised. Such an event is called as default. Another term for credit risk is default risk. The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise to meet a contractual obligation is termed as credit risk. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Banks are compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation.